Life cycle cost in the Belgian Defense: a new topic or a well known - PDF document

Life cycle cost in the Belgian Defense: a new topic or a well known business Ladies and gentlemen, it is an honor for me to act as key note speaker on this colloquium. I must admit, it has been a while since so many distinguished people were gathered in front of me to listen to what I have to say. I suppose you’re not only here due to my appearance or my presentation, but probably you are interested in the topic of today’s briefings, notably Life Cycle Costing or Life Cycle Cost. I will try to develop my thoughts on the hand of some questions that came up in my head when I first heard of this colloquium. And of course, I will try to give you some elements for answering these questions, be it the elements will be generated in my own head and are not always (perhaps even not often) supported by any academic or practical research. So I think it’s good to present up front my apologies to whomever I might shock or confuse with what I’m going to say. The first question I want to answer is a very easy one: why me as key note speaker? As in early 2011 the Colonel Faut, Director-general of the Royal Higher Institute for Defense, launched the idea for this colloquium, it seemed logic that she choose to coordinate with the different divisions and the chief of the Directorate General Material Resources. After a big period of thinking and brainstorming, the form and content of the colloquium got into its final shape and the question popped up if some-one (preferably a “general”) could address the key note speech. Obviously, the answer to this question stands in front of you. I can think of several reasons for this, like “I’m the youngest general officer in the directorate general material resources, so …”, or “Because somebody has to do it and because this is the easy part”. I hope these are not the reasons. I accepted this challenge because in my previous life, as officer “born and raised in logistics”, I have had some experience in several areas related to logistics and the different elements of the life cycle of materiel and equipment, so the different sub domains of life cycle cost are one of my drivers, even today. Second reason is that, as being a major, at the end of my Higher Staff Course in June 1999, I handed in a thesis where the use of LCC as an evaluation criterion for granting contracts was one of the points of discussion. I will come back to this later in my briefing. And last but not least, as head of the Belgian Defense Procurement Division, I am confronted with European ideas, that already are or in the future will be translated in European Law, where life cycle cost plays a major role. So, the different presentations of this afternoon will hopefully give you and me some good ideas or “heads on” on this topic. So far for the first and most easy question. The second question is already less basic and thus more difficult to answer, and goes like: Why do we want to use or elaborate the principle of life cycle cost? Examining the organization I’m working in, the directorate general material resources, one realizes our daily work and responsibilities are build around and based upon a model of life cycle management and this for our entire infrastructure and for all our equipment (be it major or minor). When looking at what we use to call the “wheel for integrated material management”, you’ll see that every different phase of the life cycle for material, equipment and infrastructure has its place. It starts with an idea of what we

need – we call it the “technical definition of objectives” – it passes through the acquisition phase and the life support activity and it ends with the disposal of this object. All the different aspects and areas of influence on these life cycle phases find their place in our organization, be it with the budgetary responsible, the material manager or the acquisition officer. Or in other words, what do we have now: we have acquisition, life support cost, disposal revenues or cost, all managed in one directorate general. All data that are linked with an action in one of these aspects, areas or phases are gathered in the database of a single and unique logistics information system, called ILIAS. So, in theory, we are able of calculating what I would call the “pure life cycle cost” for all equipment and material that is managed with ILIAS, be it with a major remark: for older equipment, probably the starting data are not available, and for newer equipment, the revenues or costs for disposal are still missing as they still are in use. Why do I use the expression “pure life cycle cost”: because the secondary data, related to manpower and man hours performed on this equipment, training and education costs, transportation costs, etcetera are missing or incomplete. Never the less, all these data already give us a good basis on what a system, infrastructure or equipment costs. And the experience shows that acquisition of the major equipment is budget heavy, maintaining and using it is sometimes even more constraining. Coming back to my question, “Why do we need life cycle cost”, and taking into account what I developed some moments ago, I am convinced that thorough life cycle cost simulations can help us in several situations. The first situation I’m thinking off is when we need to convince people when starting an acquisition program or even when launching the idea for buying new equipment. I’m thinking of persons like politicians, budgetary responsibles, the Inspector of Finance, …. Very often, and our budgetary situation is a driver in most of these discussions, the question that pops up is what will it really cost to use this equipment, with details for acquisition, support, sustainment and sometimes even disposal (will it cost to get rid of it, or will it bring in some money)? Another moment where it might be useful is the opposite situation at the other side of the spectrum: as material manager, one is confronted with a user that declares “I need new equipment, the actual equipment is end of life.” The questions to be put here are clear: Is this really so, do we need to dispose of it and buy new or does this equipment still has a future? Life cycle cost and or life cycle cost simulation can present a solid and unbeatable base for decision, or can prove our costumer is right !!! So far some thoughts why we could or would need life cycle cost calculations or simulations. Let’s tackle a new question, and now a personal question of Rudy DEBAENE: What is my dream, off course in the area of life cycle cost and not in the area of cars (like most of you I want a Ferrari or a Porsche but can not afford it)? As head of the Belgian Defense procurement Division, one of my areas of responsibility is the follow up of the contractual phase of our big investment programs. In these programs, life cycle of the material and equipment plays a major role in the evaluation of the bids and in the final attribution decision. We do this through the logistic annex of our request for tenders, where all aspects of life support for the considered major equipment are taken into account. So, in a certain sense, we use a kind of life cycle cost simulation